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Windstream Soars 21% On REIT Spin-Off Plan -- Barron's Blog

DOW JONES & COMPANY, INC. 11:01 AM ET 07/29/14

Symbol Last Price Change
WIN 12.475 +1.945 (+18.47%)
QUOTES AS OF 11:01:47 AM ET 07/29/2014


Shares in high-yielding telecom company Windstream Holdings Inc.(WIN) have surged 21% to $12.72 Tuesday on plans to spin off certain network assets into a real-estate investment trust. Windstream said the transaction will allow the REIT, which will own Windstream's existing fiber and copper network and other fixed real estate assets, to expand its network and diversify its assets through acquisitions.

"This transaction will make Windstream a more nimble competitor in today's increasingly dynamic communications marketplace and accelerate our deployment of advanced communications services," said Jeff Gardner, president and CEO of Windstream in a statement. "Additionally, the REIT will have geographically diverse, high-quality assets and sustainable cash flows with the ability to grow and diversify over time.

Windstream said it expected a 70-cent aggregate annual dividend per share for the two companies (down from

WIN's $1 current annual dividend), consisting of a 10-cent annual dividend for WIN and a 60-cent dividend for the REIT. Jefferies analysts called the plan an "elegant way" for WIN to cut its dividend. Windstream said its shareholders will retain their existing shares and receive shares in the REIT commensurate with their Windstream ownership.

From Oppenheimer analysts Timothy Horan and Jonathan Michaels:

The REIT will pay a $0.60 annual dividend, which we expect will trade at less than a 4% yield or $14+ and the services company will have a $0.10 dividend which will probably trade at a 10% yield or so. Our best guess at this point is that the company is worth at least $15/share with this structure, but potentially as much as $18....

We have seen the REIT Data centers and Towers trade 30-40% higher than non-REITs by avoiding taxes... For our sector, we believe this means that every network stock we cover is roughly 20% undervalued at this point, as they should be able to largely avoid paying taxes going forward.

Wells Fargo Securities' analyst Jennifer Fritzche was more perplexed, calling it a "surprising move" and a "very confusing transaction" but still "a positive for WIN shares" that simplifies WIN's core business focus and capital structure:

WINs' board of directors approved the plan following the receipt of a favorable private letter ruling from the Internal Revenue Service.

More at Barron's Income Investing blog, http://blogs.barrons.com/incomeinvesting/


(END) Dow Jones Newswires
07-29-141101ET
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